Market Bottoms
The Follow Through Day
It’s said that three out of every four stocks will follow the trend of the general market. It’s also known that the best opportunities come when a bear market ends, and a fresh new uptrend begins. The question is, how do you know when a new uptrend starts?
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The Follow Through Day
A Follow Through Day was defined by William O’Neil as “when one of the major market averages moves up over 1.25% on heavier volume than the previous day.” A Follow Through Day usually occurs sometime between days 4 and 12 of an attempted rally.
When to Start Counting Rally Days
While the market is in a down trend, you are waiting for the first day the market closes positive to start counting your attempted rally days. The first positive day is day 1 of the rally attempt. On day 4 or later you are looking for the Follow Through Day to occur.
How Does a Follow Through Day Fail
Not every follow through day works, but no bull market has started without one. All days of the rally do not need to be up, some may be down, however a follow through day officially fails when the low of day 1 of the rally attempt is undercut. When this happens, it is time to start looking for a new day 1 and another follow through day.
It is not uncommon to have multiple attempted rallies and failed follow through days before the market begins a new uptrend. Let’s look at a few market bottoms from the past reviewing the concepts covered.
SPX 1998 Market Bottom
SPX 2003 Market Bottom
SPX 1974 Market Bottom
To see these concepts in action and walk through the complete 1998 bottom watch the video below:
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The content presented is for informational and educational purposes only. Nothing contained in this newsletter should be construed as financial advice or a recommendation to buy or sell any security. Please do your own due diligence or contact a licensed financial advisor as participating in the financial markets involves risk.